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Bush S.E.C. Pick Is Seen as Friend to Corporations

WASHINGTON, June 2 - In Republican and business circles, William H. Donaldson has been viewed as the David Souter of the Securities and Exchange Commission, a disappointingly independent choice who sided too frequently with the Democrats.

President Bush, hearing complaints about Mr. Donaldson's record from across the business spectrum, responded on Thursday by nominating Representative Christopher Cox, a conservative Republican from California, as a successor whose loyalties seem clear. And unlike the Supreme Court, where Justice Souter has a lifetime appointment, the S.E.C. provides the White House with an immediate opportunity to tip the balance of the five-person commission in a more favorable direction.

Mr. Cox -- a devoted student of Ayn Rand, the high priestess of unfettered capitalism -- has a long record in the House of promoting the agenda of business interests that are a cornerstone of the Republican Party's political and financial support.

A major recipient of contributions from business groups, the accounting profession and Silicon Valley, he has fought against accounting rules that would give less favorable treatment to corporate mergers and executive stock options. He opposes taxes on dividends and capital gains. And he helped to steer through the House a bill making investor lawsuits more difficult.

It has also been criticized by consumer and investor organizations. They say its adoption in 1995 contributed to an unaccountable climate that fostered the big accounting scandals at companies like Enron and WorldCom a few years later.

Mr. Cox's legislative record was cited on Thursday by President Bush as a primary qualification.

"As a champion of the free-enterprise system in Congress, Chris Cox knows that a free economy is built on trust," the president said in the Roosevelt Room, as he introduced the third man in his tenure to lead the commission.

Mr. Cox, following in the tradition of other nominees to major government jobs, declined through a spokesman to comment about his record or his plans for the agency while awaiting Senate confirmation proceedings.

Appearing beside Mr. Bush on Thursday, Mr. Cox, 52, praised the commission as "one of the best-run agencies in the federal government."

"During my time as a securities practitioner," he said, "I was consistently impressed by the high caliber of professionals who regulate corporate finance and our markets. It will be an honor, if confirmed, to join this exceptional team."

Representative Cox has both fierce supporters and detractors. But both sides agree that the Securities and Exchange Commission will soon become a very different place if, as expected, he is swiftly confirmed to become the agency's 28th chairman.

Under Mr. Donaldson, a Rockefeller Republican whose credentials on Wall Street and corporate America led some to believe he would be a cautious caretaker, the commission responded to a wave of business scandals through a series of restrictive regulations and tough enforcement cases.

On the big votes, he often broke ranks with the commission's two Republicans, Cynthia A. Glassman and Paul S. Atkins, who complained repeatedly that the rules and enforcement cases promoted by Mr. Donaldson and the two Democrats were unnecessary and overly burdensome.

Senator Richard C. Shelby, the Alabama Republican who heads the Senate Banking Committee, which will hold a confirmation hearing soon, said he strongly supported Mr. Cox. Once Mr. Cox joins the commission, he said, Ms. Glassman and Mr. Atkins will almost certainly no longer find themselves in the minority.

"I have long thought that the lack of consensus on a number of big issues was very troubling, with 3-to-2 votes, and especially with a Republican chairman slipping from the two other Republicans on several big votes," Senator Shelby said in a telephone interview from Turkey. "Under Chris Cox as chairman, you are probably not going to have much of that. Chris Cox is superbly qualified for the job and he will make an outstanding chairman."

William Lerach, a prominent shareholder lawyer in San Diego who a decade ago found himself on the losing end of the political battle over investor lawsuits, agreed that the Republicans on the commission will now be more unified. But as a result, he argued, the policies it sets could be devastating for investors.

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"I would expect that Cox will use his authority for an across-the-board assault on investor protection," Mr. Lerach said. "In my experience with him, I found him to be virulently anti-investor and unrestrained in his desire to gut the securities laws. It's hard to think of a worse choice for the S.E.C. This is a world-class payback to the corporate world."

Mr. Lerach recalled that the final legislation Congress adopted to restrict investor lawsuits, the Private Securities Litigation Reform Act of 1995, was much milder than the legislation Mr. Cox first proposed. That bill had significantly raised the standard of proof for investors and had included a provision forcing the losing party in such lawsuits to pay legal fees, a provision that some experts said would have effectively killed most investor lawsuits.

Ultimately, lawmakers adopted the Senate version of the measure, which did not include those provisions.

Senator Charles E. Schumer of New York, a Democratic member of the banking committee, said he wanted to learn more about Mr. Cox's views before deciding how to vote on him.

"Donaldson achieved a good balance," Mr. Schumer said. "The question is whether Cox sees the need for balance. If he sides with somebody like Atkins, who doesn't believe in regulation at all, then we will have trouble."

One issue that is certain to arise is whether Mr. Cox will feel obligated to Wall Street and the business groups that have been among his most important political contributors.

Since 1989, his campaigns have raised more than $6 million, with more than $2 million coming from business political action committees, according to federal election reports analyzed by the Center for Responsive Politics, a nonpartisan research organization that favors tighter controls on campaign contributions. The list of top 20 industries contributing to his campaigns includes securities and investment, which have given him over $256,000; law firms, which have given $364,000; and accountants, which have given over $207,000.

Marc E. Lackritz, president of the Securities Industry Association, one of Wall Street's lobbying groups, praised the appointment. "He has a particular sensitivity to costly and unnecessary regulation," Mr. Lackritz said. "He understands that the increased costs of regulation put an unnecessary tax on investors."

But Barbara Roper, director of investor protection at the Consumer Federation of America, said that Mr. Cox's record was not encouraging to her. She said she was particularly concerned that his close ties to Silicon Valley would lead him to take steps to roll back a provision of the Sarbanes-Oxley Act that requires management to assess the effectiveness of internal financial controls and report on weaknesses.

"I expect he will be extremely activist," Ms. Roper said, "and will rework the agency in his own image."

Indeed, Mr. Cox has been consistent throughout his career. He served at the White House under President Ronald Reagan and was elected to the House in 1988 after working in California at the law firm of Latham & Watkins, specializing in venture capital and corporate finance.

After graduating from the University of Southern California, he received degrees from both the law school and the business school at Harvard.

Over the last 16 years in the House of Representatives, Mr. Cox has played a central role as one of the strongest pro-business voices.

But his advocacy for some interests also caused him some trouble. Early in the first term of President Bush, Mr. Cox withdrew his name before it was formally put forward by the White House for a federal appeals court seat on the Ninth Circuit, in San Francisco, because the slender Democratic majority in the Senate had threatened a bruising confirmation battle.